Vodafone predicted a return to growth on the back of the rising popularity of smartphones and its deal to sell the iPhone in Britain and Germany.

After three years of declining revenues, Vodafone cheered investors by announcing a doubling of annual profits to £8.7bn and predicting that it will generate up to £7bn of cash this year, allowing it to boost payouts to shareholders.

The company's promise to increase dividends by at least 7% annually over the next three years helped offset news that it had wiped a quarter – £2.3bn – off the value of its Indian operation due to intense competition in the sub-Continent.

When Vodafone bought control of India's third largest mobile phone company in 2007 there were six nationwide players. There are now a dozen. While it has since signed up more than 100 million customers and become the nation's number two player, Vodafone has been forced into a fierce price war, which has slashed margins.

The cost of operating in the country looks set to increase further when the authorities auction licences to run 3G services. Prices could run into the billions and the Indian authorities have suggested that companies such as Vodafone could pay even more for the spectrum they already have.

Chief executive Vittorio Colao, however, sent the Indian regulator a stark warning that cash today means slower growth tomorrow.

"Spectrum should not be seen as something that the government can use to squeeze money out of private capital," he said. "Spectrum is the fuel for future economic development. If you see it that way, every time you take money out of investment you take money out of future GDP growth."

The company's problems in India have caused some analysts to question whether Vodafone should remain in the country. But Colao was adamant that "India is a market that when you look at it, all the projections in terms of GDP, population, wealth creation, emergence of a middle class and opportunity for data are very positive. It is a country that, from an industrial point of view, one wants to be in."

Vodafone announced that while revenues were up 8.4% to £44.5bn, after stripping out acquisitions and foreign exchange movements, they actually declined by 2.3%. The trend has been improving over the year – in the last quarter group service revenues were down just 0.2% – so Vodafone expects to return to growth in the current financial year.

In Europe, Vodafone has been battling against fierce competition in mature markets, regulatory price cuts and the switch from high-margin voice traffic to lower margin data traffic. There has been concern that as smartphone usage takes off, it will lead to an explosion in traffic, which will require increased capital expenditure but bring little actual increase in revenues as many people are on flat-rate data tariffs.

"There is a lot of concern, I think to some extent unjustified, that the move from voice to data will be an unprofitable move for our industry," Colao said yesterday. "But what I am saying is if companies like ours continue to invest, continue to upgrade the network and quite frankly continue to be more efficient, that switch [from voice to data] can happen at the same level of profitability.""I think in the very long term people will end up spending more on their smartphones because they will be doing more and more stuff. But already today it is not - from a cash perspective - worsening our profitability."

Just 11% of Vodafone's European customers, meanwhile, have a smartphone and the company plans to increase that to 35% by 2013. At least some of that increase will come from the iPhone, which Vodafone started selling in the UK in January and will start stocking in Spain and Germany over the summer. In the UK, where Vodafone endured two years in which O2 had the Apple device exclusively, finally being able to sell the phone has halted a two year long exodus. In the three months to end March, more customers kept their mobile phone number and moved over to Vodafone UK than took their number and left, the first time Vodafone has been a net 'porter' of numbers for two years.

"This I can say is probably down to the iPhone," Colao said. "In the sense that the negative in the last two years was linked to the iPhone: personally I heard a lot of people say 'I would love to stay with Vodafone but I want an iPhone'. That was a problem and now it is not any more."